Copper futures hit 3-month low on Fed stimulus outlook, China output

Copper fell for a third day to the lowest since August on speculations the Federal Reserve might scale back its monthly bond purchases earlier than expected. Comments by a senior Fed official saying he wouldnt rule out a tapering decision at FOMCs December meeting and Chinese refined-copper output hitting a monthly record further weighed on prices.

On the Comex division of the New York Mercantile Exchange, copper futures for settlement in December fell by 1.26% to $3.193 per pound by 9:37 GMT. Prices plunged a three-month low of $3.190, while days high stood at $3.223 a pound. The industrial metal shed 1.1% on Tuesday and extended its weekly decline to over 2% on Wednesday.

Copper continued to edge lower on concern that an earlier-than-expected tapering of Feds monetary easing program is back on the table after Fed Bank of Atlanta President Dennis Lockhart said he wouldnt rule out a reduction to Feds monthly bond purchases next month. Despite providing positive signs for demand outlook, a recent string of surprisingly upbeat U.S. economic data showed the 16-day government shutdown in October had little effect on the labor market and the economic recovery seemed sustainable.

The Labor Department reported on Friday that U.S. job growth unexpectedly accelerated in October from a month earlier, signaling U.S. employers overall ignored the 16-day government shutdown last month and remained optimistic over the nation’s economic recovery. U.S. non-farm payrolls surged by 204 000 in October, exceeding the median estimate of 91 economists surveyed by Bloomberg for a 120 000 advance.

Also supporting the case for Fed tapering, a preliminary reading showed on Thursday the U.S. economy expanded at a much faster pace in the third quarter than previously expected and exceeded the previous three months’ growth. Data by the Commerce Department showed U.S. GDP (Gross Domestic Product) growth surged 2.8% in the three months trough September, the most in a year, defying analysts’ projections for a drop to 2% from the preceding quarter’s 2.5% expansion.

Lockhart however added that inflation remained low and would want to see it moving toward the central bank’s 2% target before the $85 billion in monthly purchases are reduced. He called for “continued strong stimulus” and said the central bank wants to see economic growth reach 3% or more, a faster pace than its long-term trend. According to the median of 32 economists surveyed by Bloomberg on November 8, policy makers will probably scale back Fed’s monthly bond purchases to $70 billion at FOMC’s March 18-19 meeting.

Meanwhile, Federal Reserve Bank of Minneapolis Narayana Kocherlakota shared Lockhart’s opinion and spoke even more strongly on the need for monetary stimulus. He said the central bank should continue with its aggressive action and not scale back the program in order to safeguard the economy and ensure its recovery. The Federal Reserve should do “whatever it takes” to bring the economy back to full employment quickly, he said.

Hwang Il Doo, a senior trader at Korea Exchange Bank Futures Co. in Seoul, commented for Bloomberg: “Concern about earlier-than-expected tapering of Fed stimulus is back. An increase in China’s output also put downward pressure on the market as the country may import less in coming months.”

Data by China’s National Bureau of Statistics showed the Asian nations refined-copper production rose by 23% in October from an year earlier and hit an all-time high of 637 000 tons. This was also 2.6% above Septembers output of 621 000 tons.

Meanwhile, the conclusion of Chinas Communist Partys four-day meeting brought little information in the open. The country will elevate the role of markets in the nations economic strategy by making them “decisive” in allocating resources but the government will remain “dominant” in the economy, according to yesterdays after-meeting communique.